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Cross-border posting of employees -- new decree

The Austrian Ministry of Finance published the conclusions of the Salzburg Tax Dialogue 2015 dealing with the taxation of cross-border postings of employees.

Under double tax treaties in line with the OECD model convention (OECD-MC), the remuneration for posted employees may be taxed both in the state of residence and in the state in which the employment is exercised (other state). However, the remunera- tion shall be taxable only in the state of residence, if the following three conditions are cumulatively met (art. 15(2) of the OECD-MC): (i) the recipient of the remuneration is present in the other state for a period or periods not exceeding in the aggregate 183 days in the respective calendar year; (ii) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other state; and (iii) the remuneration is not borne by a permanent establishment which the employer has in the other state.

According to a decision rendered in 2013 (cf. Austrian Supreme Administrative Court [Verwaltungsgerichtshof], 22 May 2013, 2009/13/0031), an economic view has to be applied instead of a purely civil law perspective when determining the employer. The Austrian Ministry of Finance has concurred with this approach in a decree issued on 12 June 2014 (see our International Tax Newsletter 3/2015). Based on this decree, it shall be decisive whether the company posting the employee or the receiving company bears the wage costs of the posted employee. However, the receiving company is only deemed to be the employer if passive services are rendered, i.e., services that do not constitute an integral part of the posting company's commercial activity.

On 27 October 2015, the Austrian Ministry of Finance published the conclusions of the Salzburg Tax Dialogue 2015. These deal with specific questions in connection with the cross-border posting of employees.

As regards the posting of managing directors within a group of companies, the services rendered may be regarded as active or passive. If an Austrian parent company posts a managing director to its foreign subsidiary, the services rendered qualify as active services, provided that the posting aims at exerting influence on the management of the subsidiary. Consequently, the taxation right remains with Austria, provided that the other conditions laid down in art. 15(2) of the OECD-MC are met. However, if the foreign subsidiary requires a managing director due to short-term staff shortages and receives him/her from its Austrian parent company, the services rendered qualify as passive services, provided that the managing director is not subject to any instructions of the parent company. In that case, the foreign subsidiary has to be regarded as the employer and Austria loses its taxation right.

The new decree also clarifies that the question of whether the posting or the receiving company bears the wage costs of the posted employee is not exclusively decisive when determining the employer. Nevertheless, cost bearing aspects may serve as an indication for that purpose. Other indications are, inter alia, the interest in the activities of the parent company or the subsidiary and reporting obligations of the employee. The new decree also states that even very short-term postings of employees can result in a change of the economic employer, but does not define a minimum period. In the end, an overall assessment of all the relevant factors has to be done on a case-by-case basis in order to determine the employer within the meaning of art. 15(2)(b) of the OECD-MC.

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